Archive - Sep 12, 2011
On FX - Shit or go Blind?
Submitted by Bruce Krasting on 09/12/2011 21:27 -0500Old story, but it's the same story.
And Now For Some Bad Economic News For A Change
Submitted by Tyler Durden on 09/12/2011 21:19 -0500
The past few weeks have been so heavy on horrendous newsflow out of Europe, that we've had virtually no chance to analyze the negative news in this country. And following an atrocious H1 GDP number, and just as ugly August Non Farm Payrolls number, many are betting the ranch that at this point the economy has no choice but to go up. As most know by now, the conventional wisdom wildcard that is supposed to take Q2 GDP from its stall speed level back to some modest hockeysticking, is autos, and more specifically car assemblies and production. Unfortunately, as often tends to happen, conventional wisdom is wrong and we are happy to demonstrate, using Stone McCarthy data, that not only will autos not push Q3 GDP higher as expected, but in fact the manufacturing production which is expected to benefit from a strong car market, as well as Industrial Production as a final metric, will disappointing substantially, leading to a major miss in Q3 GDP, which we have anticipated will be at best a zero, and realistically, a negative print, and carry over such manufacturing weakness into Q4 and 2012.
The Cost Of Obama's Stimulus Plan: $312,500 Per Job (Vote) Created Or Saved (And Guess Who Is Paying It)
Submitted by Tyler Durden on 09/12/2011 19:19 -0500For those eager to put some math to the rhetoric coming from the White House over the president's jobs creation plan, and that should be everyone, here is a quick and dirty estimate based on the numbers being thrown around of a 2% GDP increase in year 1 and 1.9 million jobs created or saved... most saved, as in those you can't really quantify. Said otherwise, roughly a $300 billion increase in GDP yields 1.9 million jobs. So far so good. Now since the president is proposing to pay for the program over 10 years, let's assume the $475 billion in direct expenses is financed for 10 years at 2.5% which adds roughly $120 billion to the total cost of the program. In other words, as the calculations detailed and show below elaborate, the overall AJA plan will cost $250,000 per job created (excluding the interest expense) and $312,500 per union job, er job created (including interest). And that's how much it costs for Obama to purchase one vote... created or saved. Keynesian efficiency strikes like a Swiss watch yet again.
Guest Post: Stupid Politician Monkeys
Submitted by Tyler Durden on 09/12/2011 17:30 -0500The human ape has any number of qualities not often found in other species of mammalia, including opposable thumbs and the ability to fashion and use tools. Continuing the list, I would add a tendency to form all manner of mental constructs and to then act in accordance with those constructs, even when those constructs have little or no connection to reality. Thus, for instance, I stride confidently onto the golf course with the firmly held conviction that I am a solid striker when, in fact, on most days I am a wild-hitting duffer of the lowest order. But an over-elevated opinion of one’s golf game is harmless compared to some of the delusions humans are capable of. For instance, the teenager who becomes convinced that by blowing himself up in a crowd of innocents, he is serving some sort of higher purpose… or that his reward will be an eternity highlighted by bedding virgins. A more widespread delusion is a tendency to believe in the status quo. Simply, that tomorrow will be roughly on par with today, a construct that extends out as far as the mind’s eye can see. What will Team Obama dream up next in their flailing attempts at reinvigorating an economy that more than anything needs certainty? It is literally anyone’s guess. Are we going all in on the whole carbon credit thing, or is that now a passing fad? Will the Dodd-Frank Act, with its 400+ new rules for financial institutions and everyday businesses, such as automobile dealers who offer financing, help or hurt? Will the government, having bailed out the big banks, now turn around and sue them out of existence… or just until they squeal? Is it any wonder that the banks now have upwards of $1.6 trillion in reserves sitting on the Fed’s balance sheet? Sure, they are earning a whopping 0.25% interest rate while taking no risk, as they would do if they put the money out as loans to the public. But the real implication – at least to me – is that they are keeping their capital on hand against the uncertainty of future government action and to deal with the hundreds of billions in toxic loans still on their balance sheets.
Market Snapshot - What Happened?
Submitted by Tyler Durden on 09/12/2011 16:50 -0500
A perfectly timed rumor that not only was unprovable but has potential merit (though has no ability to successfully 'fix' any of the issues that are rightfully staggering global equity and credit markets), was enough, combined with some awesomely-ironic VWAP reversion volumes to take the offer stack in S&P futures and squeeze weaker shorts enabling a miraculous run to the green finish line in ES today. While this move did support (or was supported by) other asset classes - the broad risk-basket was not as excited and moreover HYG/JNK did not participate at all in the last 30 minute rip-fest.
Unexpectedly Managed Expectations
Submitted by Tyler Durden on 09/12/2011 16:24 -0500Have the central bankers and politicians run to the rescue so often that no investor is willing to bet that they won't bail the market out again? Does everyone now fully expect a bailout at every sign of weakness? Bernanke in particular had been a fan of managing expectations. But has he managed them so much that all that is left is disappointment when he underestimates how much is already built in? You know the first time someone plays poker they are afraid to bluff. The second time they decide bluffing is great. By the third time they are so confused about who is bluffing and when that they might as well just hand their chips to the best player at the table and save everyone the time and effort or taking the chips. I think the central bankers and governments have gotten so confused they are bluffing with a few low off suit cards and don't even realize the cards are face up. A few polite people are choosing to ignore the cards. The governments and central bankers may still win but it will all come down to the luck of the draw since the odds are stacked against them.
Can We Build Our Own Economy From the Ground Up?
Submitted by George Washington on 09/12/2011 16:22 -0500A first attempt at brainstorming to get the ball rolling ...
Duration In Pimco's Total Return Fund Soars To Near Record, Highest Since 2007 In Anticipation Of QE3
Submitted by Tyler Durden on 09/12/2011 16:16 -0500Bill Gross came, saw, and i) stopped shorting govvies, and ii) doubled down on QE3, after, as he himself said, he did not anticipate how bad the US economy would get. As the just released latest monthly Total Return Fund data indicates, PIMCO now has a substantial net long position in Government Related securities, at $51.5 billion (net of swaps), a more than 100% increase from the $22.1 billion in July (and a far cry from the $9.6 billion short in April). As a reminder, Gross skepticism was predicated by the concern of who would buy bonds in an inflationary environment coupled with the end of QE2. Well, since then the bottom fell out of the market, and the Fed is about to re-enter the securities market to prevent the latest re-depression with Operation Twist if not much more. So while it no longer makes sense to be short bonds (as Gross has figured out the hard way), what makes sense is to be very, very long duration, since this is what the Fed will be buying in Operation Twist/Torque. Enter Exhibit A - the chart of maturity/distribution of PIMCO holdings, of which most notable is the explosion in average holding duration, which from 4.56 in July, has soared to 6.27 in August, the highest since 6.23 in October, and possibly the highest on record (that said our records only go back to 2007). As part of this expansion, Gross has seen his Mortgage Securities soar to $78.5 billion, the highest since February, when Gross was actively reducing his MBS holding profile, and now is doing the opposite, and is accumulating Agency paper hand over fist in an attempt to extend duration. Bottom line: Pimco is now balls to the wall in the QE3 camp, first to be manifested by Operation Twist, and then, likely by outright Large Scale Asset Purchases. Look for numerous other copycat investors to expand the duration of their fixed income holdings from 4-5 to over 6.
RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 12/09/11
Submitted by RANSquawk Video on 09/12/2011 15:13 -0500Angela Merkel's Euro Contagion Band Comes Through In The Last-Minute Clutch
Submitted by Tyler Durden on 09/12/2011 15:03 -0500The following picture from William Banzai does a good job of summarizing why today the victory may not have been for the bulls, courtesy of a strategically placed and timed rumor, it surely allowed Angela Merkel's euro contagion band to survive one more day. In the meantime, we expect rumor #4 of 2011 that China will bailout Italy (after it was buying Greek bonds, and then Portuguese, then actually balked at buying Italian bonds) to squeeze everyone, and then to fall apart as these things always do in a concerted global Ponzi scheme.
As A Reminder, Here Is What China REALLY Thinks About Italian Bond Purchases
Submitted by Tyler Durden on 09/12/2011 14:43 -0500On one hand we have FT "reporting" about Chinese Italian bond purchasing ambitions citing "unidentified Italian officials" one day ahead of a major Italian bond auction (wink wink nudge nudge). On the other hand, we have Reuters, citing a real live Italian Finance Minister (though not for long) Giulio Tremonti, who tells us a slightly different story, which, gasp, cites real live people: "Italian Economy Minister Giulio Tremonti said on Thursday that Asian investors are reluctant to buy Italian bonds because it sees they are not being bought by the European Central Bank."
Social Security a Ponzi? – I think so
Submitted by Bruce Krasting on 09/12/2011 14:17 -0500If it walks, swims and quacks like a duck, it's probably a duck.
Last Chance to Attend the Mad Hedge Fund Trader’s September 16 Seattle Strategy Luncheon.
Submitted by madhedgefundtrader on 09/12/2011 14:13 -0500Market Soars Following Latest "China Bails Out Europe" Rumor: Expected Rumor Half Life - 15 Minutes
Submitted by Tyler Durden on 09/12/2011 13:48 -0500
Update: Further negotiations are likely to take place soon, FT says, citing unidentified Italian officials. Ok seriously, enough with this bullshit, please.
How many times can the idiotic market keep falling for the same old rumor over and over and over again? Yes, for those wondering what caused this epic surge in stocks on massive volume look no further than the following FT headline which is precisely the same as what we have seen every single other "Chinese white knight" time, namely that Italy is in talks with China Investment to buy bonds, assets (it also makes it perfectly clear who the real "IMF" is). That said, this is at least the 4th time that China has "bailed out" Europe in 2011. We give this latest rumor a 15 minute half life.









